When a private oncology practice in Memphis, Tenn., formed a partnership with a nearby hospital in late 2011, the organizations proclaimed that the deal would “transform cancer care” in the region.

What they did not emphasize was that the deal also would create a windfall for them worth millions of dollars a year, courtesy of an obscure federally mandated drug discount program.

The program, known as 340B, requires most drug companies to provide hefty discounts — typically 20 percent to 50 percent — to hospitals and clinics that treat low-income and uninsured patients.

But the program is now under siege, the focus of a battle between powerful forces: the pharmaceutical industry, which wants to rein in the discounts, and the hospitals, which say they might have to cut services without them.

One issue is that the program allows hospitals to use the discounted drugs to treat not only poor patients but also those covered by Medicare or private insurance. In those cases, the hospital pockets the difference between the reduced price it pays for the drug and the amount it is reimbursed.

That is what happened in Memphis. When the West Clinic teamed with Methodist Healthcare, the huge volume of chemotherapy drugs used by the clinic suddenly qualified for the hospital's discount, while reimbursement remained the same.

In a report issued last week, pharmaceutical industry trade groups say some hospitals have gone overboard in using the program to generate revenue, straying from the original intent of helping needy patients. The report, which was supported by groups representing pharmacies, pharmacy benefit managers and oncology practices, called for the discounts to be more narrowly focused.

Some senior Republicans in the House and Senate are investigating the program.

“If 'nonprofit' hospitals are essentially profiting from the 340B program without passing those savings to its patients, then the 340B program is not functioning as intended,” Sen. Charles Grassley, R-Iowa, said in letters sent to three medical centers in October.

One reason for the scrutiny is that the program — named after the section in the law that created it in 1992 — now includes one-third of the nation's hospitals, triple the number in 2005. About $6.9 billion worth of drugs, or about 2 percent of the nation's total, are sold through the program annually, reducing revenue for the pharmaceutical companies by hundreds of millions of dollars a year.

The industry report says sales could grow to $12 billion by 2016. That is in part because the nation's new health care law will make more hospitals eligible for the discounts by increasing the number of Medicaid patients they treat, even as the need for the discounts should arguably diminish because fewer people will be uninsured.

Hospitals say 340B never was meant to merely provide cheap medicines to poor people. Rather, it was meant to help the hospitals that treat such patients, and to stretch federal resources. Making money from the spread helps keep the hospitals operating, which in turn helps needy patients, they say.

It is too early to say what changes, if any, will be made by Congress. Hospitals say restricting the discounts to drugs actually consumed by poor patients would eviscerate the benefits of the program. The hospitals are hoping the program might be expanded to help balance the federal budget.

Ailing hospitals might garner more sympathy than profitable drug companies. It is perhaps telling that no Democrats have joined the investigation of the 340B program.

“It's saving the government money, so they don't have an incentive to change it,” said Carlton Sedberry, senior director at Medical Marketing Economics, a pharmaceutical industry consulting firm. “It's making the hospitals money, so they don't have an incentive to change it.” And patients, for the most part, are unaware of 340B.